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Essay on Hathaway - Financial Policy Report
Introduction
Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. The most important of these is the property and casualty insurance business conducted on both a direct and reinsurance basis through a number of subsidiaries. Included in this group of subsidiaries is GEICO, one of the five largest auto insurers in the United States, General Re, one of the four largest reinsures in the world, and the Berkshire Hathaway Reinsurance Group. Numerous business activities are conducted through non-insurance subsidiaries. Managers make operating decisions for the various Berkshire businesses of the business units. Warren E. Buffett makes investment decisions and all other capital allocation decisions for Berkshire and its subsidiaries, in consultation with Charles T. Munger. Mr. Buffett is Chairman.
Long-term Financing Policy and Capital Structure
Berkshire’s balance sheet continues to reflect significant liquidity and a strong capital base. Consolidated shareholders’ equity at December 31, 2004 totaled $85.9 billion. Consolidated cash and invested assets, excluding assets of finance and financial products businesses, totaled approximately $102.9 billion at December 31, 2004 (including cash and cash equivalents of $40.0 billion) and $95.6 billion at December 31, 2003 (including $31.3 billion in cash and cash equivalents). Berkshire’s consolidated notes payable and other borrowings, excluding borrowings of finance businesses, totaled $3.5 billion at December 31, 2004 and $4.2 billion at December 31, 2003.
During 2004, commercial paper and short-term borrowings of subsidiaries declined $388 million, primarily from repayments arising from operating cash flow of NetJets and Shaw. Additionally, investment contract balances of $226 million were repaid during 2004. In May 2002, Berkshire issued the SQUARZ securities, which consist of $400 million par amount of senior notes due in November 2007 together with warrants to purchase 4,464 Class A equivalent shares of Berkshire common stock, which expire in May 2007....
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